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If the expected t-bill rate is 5 and the expected inflation

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Reference no: EM13567520

Consider the following information on three stocks.

                               Rate of Return if State Occurs
State of economy   Probability of state of economy   Stock A   Stock B    Stock C
Boom                                 0.5                                    0.2       0.35          0.6
Normal                               0.3                                  0.15       0.12        0.05
Bust                                   0.2                                  0.01      -0.25         -0.5

a. If your portfolio is invested 40% each in A and C, and 20% in B, what is the portfolio expected return?

b. What is the variance of this portfolio?

c. What is the standard deviation of this portfolio?

d. If the expected T-Bill rate is 5%, what is the expected risk premium on the portfolio?

e. If the expected inflation rate is 2.50%, what are the approximate and exact expected real returns on the portfolio?

f. If the expected T-Bill rate is 5% and the expected inflation rate is 2.50%, what are the approximate and exact expected real risk premiums on the portfolio?

Reference no: EM13567520

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